Lipstick effect

The lipstick effect is the hypothesis that when facing an economic crisis, consumers will be more willing to buy less costly luxury goods. The concept was publicized in 2008 when Leonard Lauder said that he noted his company's sales of lipstick rose after the 2001 terrorist attacks. The lipstick index is an indicator derived from this hypothetical effect and first was used to describe increased sales of cosmetics during the early 2000s recession. Analysis and subsequent recessions have provided evidence controverting Lauder's claims, though related indices have been proposed for other cosmetics, including nail polish and mascara.

The lipstick effect theory contends that consumers will be more willing to buy less costly luxury goods when they are facing an economic crisis. Instead of buying expensive purses and fur coats, for example, people will buy expensive cosmetics, such as high-end brands of lipstick. The underlying assumption is that a certain portion of consumers will still buy luxury goods even during a bad economy. When consumer trust in the economy is dwindling, consumers will buy goods that have less impact on their available funds. Outside the cosmetics market, consumers might be tempted to purchase other high-end goods such as expensive beers, or smaller, less costly electronic gadgets.

Juliet Shor in her book The Overspent American talks to consumers' purchase of higher-priced, more prestigious lipsticks—specifically Chanel—that are used in public compared to lower-priced, less prestigious brands that are used in the privacy of the bathroom. In a New York Times article published May 1, 2008, Leonard Lauder (chairman of the board of Estée Lauder) is quoted as saying that he noted his company's sales of lipstick rose after the 2001 terrorist attacks. In the article, Lauder coined the term lipstick index to describe increased sales of cosmetics during the early 2000s recession. Lauder made the claim that lipstick sales could be an economic indicator, in that purchases of cosmetics—lipstick in particular—tend to be inversely correlated to economic health.

The Economist tested the lipstick effect in 2009 with statistical analysis, stating that

Subsequent recessions, including the late-2000s recession, provided controverting evidence to Lauder's claims, as sales fell with reduced economic activity in that recession. Conversely, lipstick sales have experienced growth during periods of increased economic activity. As a result, the lipstick index has been discredited as an economic indicator. The increased sales of cosmetics in 2001 has since been attributed to increased interest in celebrity-designed cosmetics brands.

In the 2010s, many media outlets reported that with the rise of nail art as fad in English-speaking countries and as far afield as Japan and the Philippines, nail polish had replaced lipstick as the main affordable indulgence for women in place of bags and shoes during recession, leading to talk of a nail polish index. Similar sentiment was noted during the coronavirus pandemic, when the mandated use of face masks to prevent the spread of the disease resulted in an increase of eye makeup purchases, suggesting a mascara index.